Mark Zuckerberg doesn’t have time for Elon Musk and his excuses.
The cage fight between two tech billionaires has always felt both comical and far-fetched ever since Musk pitched the idea in June, and now Zuckerberg is trying to get the rest of us to face reality. In a post on Threads, the Facebook founder wrote, “I think we can all agree Elon isn’t serious and it’s time to move on. Elon won’t confirm a date, then he says he needs surgery, and now asks to do a practice round in my backyard instead. I’m going to focus on competing with people who take the sport seriously.” So for all of those who were hoping for a contemporary gladiatorial display at the Colosseum, that’s likely ancient history. Now, about that back, Elon.
Morning Brief
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Chinese home buyers wait for even cheaper deals.
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Everyone’s flyin’ first-class, up in the sky.
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Nikola sputters, again.
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Real Estate
China’s Housing Market Slumps Again as Buyers Play the Waiting Game
(Photo Credit: Hanny Naibaho/Unsplash)
The Long March continues for China’s developers.
The nation’s already-battered housing market is taking another hit from wait-and-see buyers, The Wall Street Journal reported this weekend. Prospective purchasers have the money, but they think prices will fall even further, leaving developers with cash-flow problems and the government with major concerns.
Three Red Lines
China’s lengthy real-estate slowdown started with the “three red lines” policy in 2020, when Beijing passed strict regulations with the aim of lowering property developers’ debts, reducing financial risk, and making housing more affordable. Sadly, the moves did the opposite as new borrowing was severely limited, developers defaulted on a record number of debts, and buyers hesitated to buy technically cheaper houses in a market that looked even more grim.
Even the sector’s biggest player isn’t safe. Country Garden — once the ideal developer in China — recently missed $22.5 million in interest payments on two US dollar bonds and expects to default. Last week, the company warned that it likely suffered a record loss of $7.6 billion in the first half of this year, and its stock value has dropped nearly 60% this year.
Some easing of the three red lines policy brought about a slight uptick in property sales and prices at the start of 2023, but that surge was brief, and developers and authorities are doing all they can to attract new buyers or risk further defaults:
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Property developers are offering perks like free parking and household appliances, but buyers are now accustomed to those bonuses, so when they’re not offered, sales go down.
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Multiple cities have begun offering “cash subsidies and tax rebates on home purchases, raising limits on how much home buyers can borrow from banks, and removing restrictions on additional home purchases,” the WSJ reported.
“[Clients] told me that the current price is unstable, and you don’t know whether it will rise or fall,” one China-based property agent told the WSJ. “So they would rather remain still to cope with a changing environment.”
A Lot More Problems: In addition to the housing crisis, China’s slow pandemic recovery has also led to deflation, high unemployment among young adults, and lackluster exports, all of which are contributing to what President Joe Biden called a “ticking time bomb” this past weekend. Some believe China’s economy is on the verge of an era similar to Japan’s Lost Decades with stagnated growth and wages. In July, Desmond Lachman of the American Enterprise Institute told Reuters “It is unlikely that the Chinese economy will surpass that of the United States within the next decade or two,” adding that he expects growth to slow to 3% annually, which “will feel like an economic recession” to the rest of the world.
– Griffin Kelly
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Aviation
Airlines Are Pivoting to First-Class
People aren’t just flying more, they’re flying lux.
Airlines are loving it, even if they can’t quite keep up. Now, Delta and United are working overtime to retrofit their aircraft to accommodate increased demand for premium, first-class tickets, according to CNBC. It’s a reminder: In the world of luxury, there’s no such thing as a recession.
Leg Room and Board
Gone are the days of cramming in as many rows of seats as possible, often at the expense of generally accepted notions of personal space. Airlines are tapping the same taste for high-end goods that sent luxury stalwart LVMH’s market cap to heights typically reserved for Big Tech.
For consumers, the increased demand is likely due at least in part to social-distancing PTSD — nobody wants a middle seat between two sniffling row-mates. For airlines, like luxury goods makers, the margins are just too sweet to pass up. That’s been doubly true this summer, as airfare has fallen precipitously; prices dropped nearly 19% in the year through June, according to a recent New York Timesreport. But premium seats can be sold for as much as six times standard seating, and airlines are seeing a steady rise in demand:
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In 2009, just 9% of Delta seats sold were premium, a company spokesperson told CNBC. But by 2019, that soared to 28%, and the company projects premium seats to account for 30% of ticket sales next year. The payout is outsized — Delta expects premium tickets to account for 35% of its $19 billion in revenue this year.
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American Airlines, meanwhile, told CNBC that it plans to increase premium seating on long-haul craft by over 45% by 2026. In its first-quarter earnings, the company said premium seat revenue was up 20% versus pre-pandemic levels.
Your Vacation Starts Now: The increased demand has sparked a mile-high race for luxurious renovations. American is scrapping first-class seats on many of its long-haul Boeing 777 crafts to feature as many as 70 “suites” with lie-flat seating and sliding doors for privacy. German airline Lufthansa has embarked on a €2.5 billion journey to rehaul its premium options. Underlying the entire trend: repeat business. “Once you start flying in those cabins, you tend not to go back,” Delta President Glen Hauenstein recently told the Financial Times. That’s either a selling point or a consumer warning, depending on the size of your bank account.
– Brian Boyle
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Big rigs come with big risks. At least if they’re made by Nikola.
On Friday, the EV player recalled most of the electrified commercial trucks it’s sent into the wild, due to a battery defect that could cause fires. Alas, this being constantly troubled Nikola, “most of” its produced fleet comprises about 200 vehicles.
What the Truck
We’d never blame a consumer for being the victim of faulty product design. On the other hand, Nikola’s long history of dodgy, occasionally criminal behavior perhaps signaled that reasonable minds should steer clear. After all, the company was founded on an “ocean of lies,” according to short-selling muckraker Hindenburg Research, which made a killing betting against the company while releasing an extensive investigative report into its many instances of corporate malfeasance.
That report eventually led to the conviction of founder Travis Mill on securities fraud charges, and ever since the company has failed to meet even its modest production goals. As usual for Nikola, the recall news couldn’t have come at a worse time:
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In its second-quarter earnings report earlier this month, Nikola announced losses of nearly $218 million, way wider than $173 million a year ago, while revenue dropped to $15 million. Ouch.
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After multiple failed attempts, the company also said earlier this month that it finally reached the requisite number of shareholder votes to issue more shares — which it says is necessary to raise more capital to keep its production capacity afloat.
Originally, Nikola suggested that foul play may have led to the fiery defect. But an outside firm hired to probe the problem found that to be unlikely. As usual, it was a case of Nikola self-sabotage.
Out of Juice: The recall of 209 battery-powered commercial trucks — or roughly 60% of what it produced last year, and nearly all of the fleet it’s been able to sell — dovetails with the company’s transition away from battery-powered EVs. Just last week, Nikola announced it was ramping down battery-vehicle production to focus on making hydrogen-cell trucks. Oh, the humanity.
